Banking M&A: Why is the German banking sector currently attractive for investors?
The M&A market for financial institutions in Germany is very active due to an overall trend towards consolidation in the sector. This is due to regulatory pressure, the low interest rate environment and the fact that there is a relatively high number of financial institutions.
Which targets are particularly attractive?
The Landesbanken are currently undergoing many changes. These banks have traditionally been owned by federal states. Apart from FinTechs, which are an investment focus in many countries, these banks can be attractive takeover targets in Germany due to their strong networks in the German economy. Their customers include large and medium-sized German companies as well as institutional investors and wealthy private clients.
HSH Nordbank, now Hamburg Commercial Bank, has recently been bought and privatized by a group of independent investors, including Cerberus and J.C. Flowers. This was the first privatization of a Landesbank in Germany, and we are proud to have advised J.C. Flowers on this process as lead counsel.
Recently, there was also a bidding process regarding an investment in Nord LB. Acquisitions and mergers involving Landesbanken are definitely on the agenda.
What are the specific risks associated with the acquisition of a public bank?
Landesbanken are state-owned banks. This means that many aspects of a takeover or merger of a Landesbank have to be dealt with in the context of the tight legal framework of national financial regulatory laws and European state aid laws.
Challenges of a privatisation include taking the Landesbank out of the institutional protection system of the German state-owned banks and putting it into the deposit protection scheme of the German private banks as well as dealing with the guarantor liability of the Federal States for certain liabilities of the bank.
Can these risks be successfully managed?
The successful acquisition and privatisation of HSH Nordbank has shown that these risks are not insurmountable. Aspects of this takeover may serve as a blueprint for further transactions.
What opportunities are there for PE Funds?
Certain PE funds are particularly attracted to investing in German banks and have high levels of dry powder for such investments. In addition to the acquisition of HSH Nordbank, many other interesting transactions have taken place in the last 12 months in Germany, such as the sale of the comdirect subsidiary ebase in an auction process to a PE investor.
There are currently a number of opportunities available, and due to the state of the larger private German banks compared with their foreign competitors, we also see a political discussion about the need for a strong German bank which could ensure the financing of German companies in a crisis and rumours about a possible mega-merger involving one or more of the market leaders persist in the German Financial Institutions M&A market.